High Court Says Fraud Lawsuits Must Be Filed Within Five Years

Feb 27 2013 | 12:34pm ET

In a ruling with a potentially wide-ranging affect on government enforcement, the U.S. Supreme Court today rejected a Securities and Exchange Commission bid to extend the statute of limitations in a mutual-fund market-timing case involving a hedge fund.

The hedge fund in question, the former Folkes Asset Management—now known as Headstart Advisors—was not directly involved in the case; it settled the matter years ago. So did the mutual fund company in question, Gabelli funds. But two Gabelli executives fought the SEC lawsuit, which accused Marc Gabelli and Bruce Alpert of approving Folkes' market-timing without disclosing it to the fund's board or investors, and while at the same time denying requests to market-time from other investors.

The last allegedly improper trade took place in August 2002, but the SEC did not sue until April 2008. A lower court approved the lawsuit, arguing that the clock doesn't start ticking on the five-year statute of limitations until the SEC had a reason to know a violation occurred.

Three years ago, the Supreme Court ruled that the statute for shareholder fraud suits doesn't begin to expire until investors have indications of company wrongdoing. But, Chief Justice John Roberts wrote for the unanimous court, the federal government is not a fraud victim, and the SEC lawsuit sought not restitution, but penalties.

"The SEC, for example, is not like an individual victim who relies on apparent injury to learn of a wrong," Roberts wrote. "Rather, a central 'mission' of the Commission is to 'investigat[e] potential violations of the federal securities laws."

"In a civil penalty action, the Government is not only a different kind of plaintiff, it seeks a different kind of relief. The discovery rule helps to ensure that the injured receive recompense. But this case involves penalties, which go beyond compensation, are intended to punish, and label defendants wrongdoers."


In Depth

Hedge Fund Veteran Peter Borish Talks Trading

Dec 17 2014 | 9:32am ET

Peter Borish says 2014 was “tricky” from a trading perspective. “The best...

Lifestyle

Cohen Donates $1.5M To GOP Governors Association

Dec 10 2014 | 7:13am ET

The Republican Governors Association raised close to $25 million from October 1...

Guest Contributor

Q&A With Daniel Gallancy: Institutional Interest In Bitcoin Is Growing Steadily

Dec 12 2014 | 7:54am ET

Daniel Gallancy is founder and CEO of SolidX, a provider of total return swaps for...

 

Sponsored Content

Editor's Note

    Guidelines for Guest Articles

    Oct 22 2014 | 9:46am ET

    We are always looking for guest articles from hedge fund managers and buy-side firms.

    If you are interested in submitting a contributed piece for possible publication on FINalternatives, please take a look at the specs. Read more…

 

Futures Magazine

December 2014 Cover

Futures 2014 person of the year

Jeff Sprecher was simply looking for a platform to trade energies when launching ICE 14 years ago but it has grown to reach the pinnacle of both the listed futures and equities world.

The Alpha Pages

TAP July/August 2014 Cover

The Alpha Pages Interview: Senator Rand Paul

Senator Paul sat down in the debut series of the Alpha Pages Interview to discuss the broken tax code, regulation surrounding Bitcoin, and his plans for the 2016 Presidential election.